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Justices Eye Attorney Fees in Contract Breach Case

October 15, 2015 | Posted in : Expenses / Costs, Fee Award, Fee Dispute, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Jurisprudence, Fee Shifting, Fee Statute, Fees as Sanctions, Prevailing Party Issues

A recent Legal Intelligencer story, “Justices Eye Attorney Fees in Contract Breach Case” reports that in an argument that one justice called "remarkably brief," Pennsylvania's high court took on the narrow question of whether the Contractor and Subcontractor Payment Act (CASPA) requires an award of attorney fees to the winner of a case, if the party that breached the contract nevertheless acted in good faith.

John A. Bacharach of Bacharach & Michel, representing Warren Plaza, which was found to have breached its contract, began to argue that his client should not have to pay attorney fees that total nearly three times the amount in dispute.  But Justice Max Baer interjected a question, and said Warren Plaza was found to have acted in bad faith in the trial court.  Warren Plaza's brief, however, said the trial court found both parties shared the blame.

"It's a narrow issue, but an important one," Bacharach said.  "A finding against Warren in this case means ... that no matter what effort they make to comply with the contract ... [a losing party] is still obligated to pay the reasonable attorney fees."

Baer questioned why the court took up Warren Plaza's appeal. "We took it for a discrete legal issue," Chief Justice Thomas G. Saylor said.

Marcia L. DePaula of Steptoe & Johnson said the trial court decided her client, Waller Corp., was the "substantially prevailing party," and therefore should be awarded attorney fees based on precedent in Zimmerman v. Harrisburg Fudd I.

She argued the section of CASPA in question did not include language regarding good faith and attorney fees.  "If the legislature wanted to include a wrongfully withheld provision for attorney fees, they would have done it under [Section] 512(b)," she said.

But in Warren's brief to the Supreme Court, Bacharach said Zimmerman held that, under Section 512(b), "attorney fees would not be awarded if prompt payment was withheld in good faith."

Superior Court Judge John T. Bender made a similar argument in a concurring and dissenting opinion when Waller v. Warren Plaza was before the intermediate appellate court.

The Superior Court decided Waller in June 2014, ruling that the trial court was correct in awarding attorney fees to plaintiff Waller, even though defendant Warren Plaza said it had a good-faith reason for withholding payment.  The court also approved the increase in the fees awarded from $33,000 to $78,071.

"The fact that a party withholds funds in good faith is relevant to a determination of whether a party is entitled to statutory interest and penalties under [CASPA], not attorney fees," Judge Anne E. Lazarus wrote in a 14-page majority opinion, joined by Judge Sallie Updyke Mundy.

Bender disagreed.  In his concurring and dissenting opinion, he said the awarding of attorney fees in this case went against precedent set in Zimmerman, which said that to qualify as a substantially prevailing party, a plaintiff must prove that the defendant withheld payment without a good-faith reason.

"Here, the trial court found expressly that appellant 'had a good-faith basis, although mistaken, to withhold payment,'" Bender said.  "In my view, the trial court's finding is dispositive of this issue, and, therefore, the trial court erred in concluding that Waller was the substantially prevailing party."

According to the opinion, Warren Plaza hired Waller in 2000 as general contractor on an apartment building.  Throughout Waller's work, eight changes to the project were memorialized through change orders, but Warren Plaza never signed two of them, Lazarus wrote.

Warren Plaza refused to pay the costs associated with the unsigned change orders, the opinion said, so Waller filed a breach of contract action seeking repayment, penalties, interest and attorney fees.  Waller won a verdict of $69,904.  Later, the trial court granted Waller's motion to increase the attorney fees to more than $78,000.

The Superior Court affirmed the verdict, and found the appeal on attorney fees to be meritless, Lazarus said, based on CASPA.  Lazarus quoted the relevant portion of CASPA, which said "the substantially prevailing party in any proceeding to recover any payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses."